Chinese Tech Faces New Curbs on Connecting Banks and Borrowers

China’s internet lenders are facing another setback, with potential curbs on fee-based business that could push them to take more risk with their own balance sheets.

Regulators are considering stricter rules on what is known as loan facilitation, people familiar with the matter said. In this system, internet-lending platforms assess borrowers, connect them with lenders and sometimes help with risk management for outstanding loans but don’t put any capital at risk.

The potential changes would be on top of restrictions on the industry’s other main model, co-lending in partnership with banks. Rules issued in February require internet groups to fund at least 30% of co-lending loans themselves by 2022. Previously, they were able to contribute a sliver of capital and take an outsize share of the profit from these unsecured loans.

Overall, authorities want to ensure that online platforms have skin in the game, banks have a proper grip on the risks they are running and consumer data isn’t misused. Beijing is concerned both about financial stability and about reining in Western-style borrowing and spending habits among younger generations.